Consumer behaviour
BBA 112 wk 3
•Consumer behavior
•EKB model
•Complements & substitutes
•Income and Substitution Effects
Consumer behaviuor
• referred to as the study of when, why, how,
where and what people do or do not buy
products.
• It blends elements from psychology,
sociology, social psychology, anthropology and
economics.
• It attempts to understand the buyer decision
making process, both individually and in
groups.
• It studies characteristics of individual
consumers such as demographics and
behavioural variables in an attempt to
understand people's wants.
• It also tries to assess influences on the
consumer from groups such as family, friends,
reference groups, and society in general.
• Customer behaviour study is based on consumer
buying behaviour, with the customer playing the
three distinct roles of user, payer and buyer.
• Relationship marketing is an influential asset for
customer behaviour analysis as it has a keen
interest in the re-discovery of the true meaning
of marketing through the re-affirmation of the
importance of the customer or buyer.
• A greater importance is also placed on consumer
retention, customer relationship management,
personalisation, customisation and one-to-one
marketing.
• Social functions can be categorized into social
choice and welfare functions.
• Each method for vote counting is assumed as a
social function but if Arrow’s possibility theorem
is used for a social function, social welfare
function is achieved.
Basic model of consumer decision making also refered
to as EKB model (Engel, Kollat & Blackwell, 1969)
Problem recognition
• Problem recognition is that result when there is a difference
between one's desired state and one's actual state.
Consumers are motivated to address this discrepancy and
therefore they commence the buying process.
• Sources of problem recognition include:
• An item is out of stock
• Dissatisfaction with a current product or service
• Consumer needs and wants
• Related products/purchases
• Marketer-induced
• New products
• The relevant internal psychological process
that is associated with problem recognition is
motivation.
• A motive is a factor that compels action. Belch
and Belch (2007) provide an explanation of
motivation based on Maslow's hierarchy of
needs and Freud's psychoanalytic theory.
Information Search
• Once the consumer has recognised a problem, they
search for information on products and services that
can solve that problem. Belch and Belch (2007) explain
that consumers undertake both an internal (memory)
and an external search.
• Sources of information include:
• Personal sources
• Commercial sources
• Public sources
• Personal experience
• The relevant internal psychological process
that is associated with information search is
perception.
• Perception is defined as 'the process by which
an individual receives, selects, organises, and
interprets information to create a meaningful
picture of the world'
• The selective perception process Stage Description
Selective exposure consumers select which
promotional messages they will expose themselves
to.
• Selective attention consumers select which
promotional messages they will pay attention to
Selective comprehension consumer interpret
messages in line with their beliefs, attitudes, motives
and experiences Selective retention consumers
remember messages that are more meaningful or
important to them
• You should consider the implications of this process
on the development of an effective promotional
strategy.
• First, which sources of information are more
effective for the brand and second, what type of
message and media strategy will increase the
likelihood that consumers are exposed to our
message, that they will pay attention to the
message, that they will understand the message,
and remember our message.
Information evaluation
• At this time the consumer compares the brands
and products that are in their evoked set.
• How can the marketing organization increase the
likelihood that their brand is part of the
consumer's evoked (consideration) set?
• Consumers evaluate alternatives in terms of the
functional and psychological benefits that they
offer.
• The marketing organization needs to understand
what benefits consumers are seeking and
therefore which attributes are most important in
terms of making a decision.
Purchase decision
• Once the alternatives have been evaluated, the
consumer is ready to make a purchase decision.
• Sometimes purchase intention does not result in an
actual purchase.
• The marketing organization must facilitate the
consumer to act on their purchase intention.
• The provision of credit or payment terms may
encourage purchase, or a sales promotion
such as the opportunity to receive a premium
or enter a competition may provide an
incentive to buy now.
• The relevant internal psychological process
that is associated with purchase decision is
integration.
Postpurchase evaluation
• The EKB model was further developed by Rice
(1993) which suggested their should be a
feedback loop, Foxall (2005) further suggests
the importants of the post purchase
evaulation and that the post purchase
evaluation.
Price consumption curve
• See separate page:
Changes in Price: Complements, substitutes.
Substitution and Income Effects
• Substitutes & Complements:
• Two goods are considered complements if an
increase (decrease) in the price of one leads to
a decrease (increase) in the quantity
demanded of the other (Ex: gasoline and
motor oil)
• If two goods are independent, then a change
in the price of one good has no effect on the
quantity demanded of the other (Ex: price of
chicken and price of airplane tickets)
• Two goods are considered substitutes if an
increase (decrease) in the price of one leads to
an increase (decrease) in the quantity
demanded of the other (Ex: movie tickets and
video rentals)
Substitutes & Complements
• If the price consumption curve is downwardsloping, the two goods are considered
substitutes
• If the price consumption curve is upwardsloping, the two goods are considered
complements
• They could be both
Income and Substitution Effects
• A change in the price of a good has two effects:
– Substitution Effect
– Income Effect
• Substitution Effect
– Relative price of a good changes when price changes
– Consumers will tend to buy more of the good that has become
relatively cheaper, and less of the good that is relatively more
expensive
• Income Effect
– Consumers experience an increase in real purchasing power when
the price of one good falls
Income and Substitution Effects
• Substitution Effect
– The substitution effect is the change in an item’s
consumption associated with a change in the price
of the item, with the level of utility held constant
– When the price of an item declines, the
substitution effect always leads to an increase in
the quantity demanded of the good
Income and Substitution Effects
• Income Effect
– The income effect is the change in an item’s consumption
brought about by the increase in purchasing power, with the
price of the item held constant
– When a person’s income increases, the quantity demanded
for the product may increase or decrease
• Income Effect
– Even with inferior goods, the income effect is rarely large
enough to outweigh the substitution effect